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HMRC internal manual

International Manual

HM Revenue & Customs
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The attribution of capital to foreign banking permanent establishments in the UK: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets: the banking book: funding off-balance sheet items

Off-balance sheet items may not actually require funds to create them. For example, if a bank guarantees a debt of £1m then it may not need £1m on day one, but it will need to have funds if the guarantee is exercised. Notwithstanding this, off balance sheet assets can still carry risk and, if so, banking regulators do require banks to hold capital to support that risk. In order to calculate the capital to be attributed to the permanent establishment (PE) for tax purposes, therefore, off- balance sheet assets will need to be risk weighted.

Where the amount of the off-balance sheet assets is negligible, then there may be cases where these can be left out of account - cases where the numbers are so small that they cannot materially affect the arm’s length range of capital that would be attributed to the PE.